Recession expected to hit as early as Q1 2012

The events such as debt crisis in the EU, US rating cut, slowing manufacturing in China, monetary tightening in emerging Asia, fresh austerity measures in the UK and EU are all likely to reverse the global economic recovery taking us to a fresh phase of recession may be as early as Q1 2012.

The upcoming recession may be a little worse and sustained one if policy makers fail to address the issues at hand properly.

It looks the monetary policy and the fiscal policy adopted starting 2008 failed to give the world a sustained push of recovery and recent data suggests global growth has been fragile except for some emerging countries.

A soft monetary policy many not be effective as private sector starts deleveraging from what we have seen in Japan during South East Asian recession. Richard Koo from Nomura sees it as a Balance Sheet Recession. In such a scenario fiscal spending boosts the sentiment. Currently, US and European countries are going ahead with vast austerity measures- opposite of what is required during a balance sheet recession- which may  Lead  to a sustained economic downtrend.

Given this, we may see continuous rise in investment demand for safe haven instruments. For example,  Gold  prices have appreciated sharply and rose to a new historic high of $1920 recently. US treasuries yield fell below 3% posting historic lows. (Bond price and yield are inversely co-related.)

Impact on metals-energy complex
The slowing down of global economy and fear of another recession led to some serious liquidation in metals and energy complex. NYMEX traded WTI  Crude Oil  prices posted low below $80 a barrel last month, after sustaining below the $100 per barrel level. With the outlook for economic growth in the US and EU revised downwards, the Organization of Petroleum Exporting Countries has cut its forecast for worldwide oil demand growth this year by 150,000 barrel per day. In its latest Monthly Oil Market Report, OPEC forecasts global oil demand will increase by 1.21 million barrel per day this year to average 88.14 million barrel per day.

OPEC noted that economic worries along with high oil prices have affected oil demand in the advanced economies of the Organization for Economic Cooperation and Development (OECD), leading to weaker-than-expected consumption during the summer driving season. And oil demand in the OECD is expected to continue to contract after a temporary rebound last year.

The industrial metals were under pressure while the case being less severe when it comes to Copper.

Copper is taking support from supply side issues despite demand outlook weakening. Worries about disruptions in copper-mine output sparked concerns among market participants, that deficit in 2011 may a bit larger than expected. Recent data from Chile, the world's largest  Copper  producer, has shown that a series of mine workers' strikes in July substantially reduced copper output. Copper output in the world's No. 1 producer totaled 373,498 tons in July, down 18 % from the same month last year, the INE said.

The July copper output figure was substantially below June copper output of 426,477 tons, reported by the INE last month. Chile has been hit by a wave of protests by mining workers demanding a bigger share of the copper price bonanza, including a two-week strike at Escondida, the world's top copper deposit, that started in July.

However, other metals were under pressure taking  Silver  into account as an industrial metal. However, Silver prices managed to take support from  Gold  prices as investment demand continue to rise.

The weakness in commodities may extend further in September while Gold may reach new highs. High yielding currencies such as INR may come under pressure v/s the US dollar.

There has been sharp swing in financial market last week with news flowing from the Euro zone and the US showed slowing growth, causing panic among inventors. The US stock market dropped, Germany and France crashed, emerging Asian stocks slid, high yielding currencies fell and safe haven US treasuries, German Bund UK Gilt and Gold rose.

Commodity based currencies such as Canadian Dollar and Australian Dollar had some pressure owing to selling momentum in general commodities.

 

 

 

 

 

 

Gold: The only safe haven left

Not so  long ago, US Treasuries were considered a " risk-free" investment. But the  financial  crisis, hulking budget deficits, political gridlock, and the Standard & Poor's debt downgrade have changed that perception – forever, writes Keith Fitz-Gerald, chief investment strategist at Money Morning.

Now there's only one safe -haven investment: gold.

Since surging to a record high earlier this month, the  GoldPrice has slipped on profit taking. But don't let that minor correction fool you into thinking gold's bull run is over. The yellow metal's best days are still ahead.

How do I know? Because, unlike US debt, gold can't be downgraded. It has inherent value that's more reliable than the word of even the most powerful country on earth.

Gold was used as currency for centuries. In fact, it's still being used for transactions in places such as China, India, and much of the Middle East – regions that are eager to diversify away from the beleaguered US Dollar.

But now gold's also usurping the role US Treasuries have played for the better part of a century – that of the ultimate investment safe haven.

Just take a look.

From July 21, 2009 to mid-July of this year, the correlation between Treasuries (as represented by the iShares 20-Year Treasury Bond  ETF  (NYSE: TLT)) and gold (as represented by the  SPDR  Gold  Trust ETF (NYSE:  GLD)) was 0.5 – meaning that only half the movement of one coincided with the other.

However, in the period ranging from July 21, 2011 to Aug. 16, 2011, the correlation jumped by 78% to 0.89. That means gold and 20-year Treasuries are moving in near- perfect lock step.

What's the catalyst for this shift? I believe  traders  are using  Gold  to hedge their holdings against the systemic solvency risk of a global banking failure. Simply put, they're looking to cover their bets should the worst happen.

Far fetched? Not really. If the banking system crashes, it will take the developed world's financial system down with it. And when that happens, it's very likely that cash withdrawals or cash transfers will be frozen, as will the credit  markets.

Thus, gold may be one of the few assets that's still actively traded, meaning there's still an independent pricing mechanism in place.

You will, for example, be able to price gold at the local pawnshop – just as easily as you'll be able to cut a deal on the corner of the street (though hopefully not at gunpoint).

At an institutional level, this is already happening, albeit with a slightly different twist.

ICE Clear Europe Ltd. – a unit of Intercontinental Exchange Inc. (NYSE: ICE) and one of Europe's top derivatives- clearing companies – is accepting gold as  trading  collateral. Earlier this year, JPMorgan Chase & Co. (NYSE: JPM) and the Chicago Mercantile Exchange (CME) also started accepting gold as trading collateral.

The advantage gold offers is incontrovertible . Bonds – be they US T reasuries or other types of securities – are limited by their sovereign backers. That means they are only as solid as the country that's backing them.
But that's not true of the yellow metal.   The lesson here is clear: You can't downgrade gold and that makes it the world's only risk-free investment.

 

 

 

 

Silver becomes hot favourite in Asian exchanges

BEIJING/MUMBAI(Commodity Online):  The increased investor interest and rebound in prices for  Silver  have made it the new favorites in Asian commodity exchanges. In China's Hunan Province, a new precious metals exchange focussed on silver began trading from late June while the Hong Kong Mercantile Exchange has started offering a new silver futures contract from July 22. 

In India's largest commodity bourse, Multi-Commodity Exchange of India (MCX), silver continues to be one of the hot favourites for investors with total value of contracts traded at Indian Rupees 302863.283 crore when compared to INR 247071.058 cr for fortnight August 1-15, 2011.

The Hunan South Rare and Precious Metal Exchange is functioning from central China’s Hunan province in Yongxing County.The area is known as the ‘Silver City of China’ because of its abundant silver output, about 25 percent of the country’s annual silver production, according to Cao Minghui, general manager of the
Exchange. The Exchange's aim is to achieve a goal of 1 trillion yuan in annual trading volume by the end of 2015, Cao said.

The Hong Kong Mercantile Exchange (HKMEx) has begun trading a dollar-denominated silver futures contract. The silver contract is being traded in lots of 1,000 ounces and be delivered in Hong Kong. According to HKMEx, the silver contract will enable buyers and sellers in China to trade effectively wiht their counter parts across the world, while at the same time allowing investors to gain exposre to  Silver  price movements and broadern their investment portfolio. Silver demand in China has risen 67% in China and 17% globally between 2008 and 2010.

HKMEx silver contract isn additioin to its US dollar 32 troy ounces  Gold  futures contract currently being traded on the Exchange. HKMEx also plans to launch gold and silver futures contracts denominated in renminbi later this year.

In India's MCX, silver volumes have risen to 51194,628 metric tonnes in August 1-15 period, while that of gold was 984.545 MT. Silver September contract has risen 5% in August at MCX to Rs 61690 on Wednesday.

India's National Spot exchange which wintessed 605% growth in e-gold average monthly turnover in first four months of Financial Year 2011-12 at RS 3082.62 cr also is witnessing increased interest in e-silver. I thas nine delivery centers in India and e-Silver is denominated in 100 gm, 1 kg, 5 kg and 30 kg. E-gold & E silver are investment product that permits holding the bullion in demat form. The segment is on the lines of the cash segment in equity, and offers commodities in the demat form in  smaller denominations, accoridng to NSEL. E-Silver contracts recorded a turnover of Rs 54273.56 cr as on August 8, NSEL informs.

 

 

Gold flat ahead of U.S. payrolls data

changed on Friday as investors remained cautious ahead of a key
U.S. payrolls report due later in the day, after recent data
sent mixed signals about the status of the world's largest
economy. 	

 FUNDAMENTALS	

 * Spot gold traded flat at $1,824.34 an ounce by 0025
GMT, on course for a weekly decline of 0.2 percent.	

 * U.S. gold GCcv1 was also little changed at $1,827.50,
headed for a weekly gain of 1.7 percent.	

 * Caution is likely to prevail before the key U.S. August
employment report is released at 1230 GMT. Nonfarm payrolls are
expected to have increased 75,000, slowing from July's 117,000
rise, according to a Reuters survey. 	

 * U.S. manufacturing unexpectedly grew in August and fewer
Americans filed new claims for jobless aid last week despite a
slump in confidence that threatened to push the economy back
into recession. 	

 * New York metal market will be closed on Sept. 5 in
observance of the U.S. Labour Day holiday, but the CME Globex
electronic platform will be open on Monday for shortened hours.
 	

 MARKET NEWS	

 * Wall Street's four-day rally ground to a halt on Thursday,
with major indexes falling 1 percent on caution ahead of the
labor market report expected to underscore fears the economy is
headed for another recession. 	

 * The dollar traded steady against a basket of currencies
 on Friday. 	

Spot gold falls 0.7 pct, reverses rally

 * Spot gold fell 0.7 percent to $1,815.16 an ounce by
0035 GMT.	

 * U.S. gold GCcv1 gained 1.2 percent to $1,818.80.	

 * U.S. Federal Reserve Chairman Ben Bernanke on Friday
stopped short of detailing further action to boost the economy
but said the central bank would consider what more it could do
to fight high unemployment. 	

 * Holdings in the world's biggest gold-backed
exchange-traded fund, SPDR Gold Trust , edged lower to
1,230.799 tonnes by Aug 26. The fund recorded a nearly 60 tonnes
of outflow last week, but had an inflow of 22.5 tonnes so far
this month. 	

 * Money managers trimmed their net length in gold futures
and options for a third straight week, even as bullion prices
shot up by another 7 percent to fresh records above $1,900 an
ounce, data on Friday showed. 	

 MARKET NEWS	

 * Wall Street posted its first weekly gain in more than a
month as Bernanke raised hopes for more stimulus for the economy
at the U.S. central bank's September meeting. 	

 * The dollar held steady on Monday, after tumbling on Friday
following Bernanke's speech which stopped short of detailing
further action to spur a faltering economy.